August 10, 2014

"What Today's Economic Gloomsayers Are Missing"

World-class optimism from noted economist Joel Mokyr. I think he is absolutely correct.

So: If everything is so good, why is everything so bad? Why the gloominess of so many of my colleagues? Part of the story is that economists are trained to look at aggregate statistics like GDP per capita and measure for things like "factor productivity." These measures were designed for a steel-and-wheat economy, not one in which information and data are the most dynamic sectors. They mismeasure the contributions of innovation to the economy.

Many new goods and services are expensive to design, but once they work, they can be copied at very low or zero cost. That means they tend to contribute little to measured output even if their impact on consumer welfare is very large. Economic assessment based on aggregates such as gross domestic product will become increasingly misleading, as innovation accelerates. Dealing with altogether new goods and services was not what these numbers were designed for, despite heroic efforts by Bureau of Labor Statistics statisticians.